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Enforcement of universal standards becoming globalized

Companies doing business globally face a number of challenges ensuring that their business practices do not run afoul of legislation in different jurisdictions.

However, according to Jeffrey W. Cottle, London-based Partner with the international law firm Steptoe & Johnson, the development of global standards is easing the pain of developing appropriate compliance standards for companies operating in multiple jurisdictions. But it should be noted that at the same time as standards are being globalized, so is enforcement of these standards, as companies are encountering more multi-jurisdictional and sometimes simultaneous enforcement efforts.

“We are seeing a trend toward a global set of standards, where standards are becoming ‘jurisdictionally agnostic.’ In other words they are not peculiar to any one jurisdiction.”

Cottle says that the push toward global norms arises from the fact that companies themselves are becoming more global. However, while the trend is evident in many sectors, he notes that some industries and indeed countries are at a more advanced stage of harmonization with common compliance standards than others, with factors such as enforcement levels driving these developments.

The compliance specialist points to several recent multi-national enforcement cases involving Norwegian and Swedish companies as catalysts for Nordic companies to be more proactive about their compliance programs.

“The Nordic oil and gas industry and telecoms industries have been hit hard by enforcement actions, so they have become fairly forward-thinking with respect to compliance. Other sectors with a lower level of enforcement may be less proactive,” Cottle observes.

Multi-jurisdictional enforcement on the rise

Standards are not the only aspect of corporate compliance steadily internationalizing to head off possible corruption. Enforcement is also matching the trend, with more multi-jurisdictional enforcement actions likely. With increasing information sharing among national enforcement authorities, a global enforcement network is arising, Cottle says.

“Gone are the days when a local enforcement authority finding out about a particular piece of malfeasance would have only local repercussions. It’s fair to say that we have specific examples of information sharing among enforcement agencies throughout the world,” he adds.

While multinationals are coming under growing pressure to ensure compliance with internationalizing standards, enforcement authorities are also feeling the heat if they fail to intervene in known infringements.

The Steptoe Partner points to the role of international NGOs in compelling local authorities, including in the Nordics, to step up their game in terms of enforcement. In other cases, enforcers may also lean on their counterparts in other jurisdictions to take action in cross-border cases.

Sanctions, whistleblowers assuming growing importance

The imposition of a rash of economic sanctions as part of recent geo-political developments also has implications for corporates doing business globally. In many cases companies have found themselves conducting negotiations in countries or with individuals subject to sanctions.

Moreover, sanctions defy a global standard because they are a national foreign policy tool. According to Cottle this puts companies in a difficult position.

“Many Nordic companies are faced with very difficult choices because they have a nexus with countries such as Russia that are the targets of sanctions by other countries (such as the US). Do they adhere to the sanctions law of all countries (including the US), or do they try to ‘parse the jurisdiction’, as we say,” Cottle remarks.

Companies with a global scope operating in a setting where multi-jurisdictional enforcement is increasingly common also face the risks caused by the rise of the whistleblower, or individuals who expose improper or criminal acts.

The introduction of financial incentives or bounties in the US for whistleblowers is likely to further increase investigations and possible enforcement action, Cottle notes. While the whistleblower risk currently affects mainly US companies, multinationals may also find themselves grappling with this trend.

Evaluating risk to develop global compliance standards

Corporates operating in a scenario in which global norms for corporate behavior are increasingly common, and where greater multi-jurisdictional enforcement is likely, will need to be more proactive in ensuring they implement adequate compliance programs, Cottle counsels. However, integrating compliance across diverse markets is a delicate dance involving mitigating risk without wasting resources, he adds.

“The challenge is not to overdo, but to meet the risk,” Cottle says.

Cottle advises companies to determine the corporate appetite for risk, an exercise that he says very few firms actually conduct.

“Everything follows from this. How the company sees hospitality, which business partners it chooses, even the jurisdictions in which it chooses to do business.”

Not only must the company’s risk tolerance be clearly articulated in strategy, it must be communicated throughout the organization, another activity that is frequently neglected.

Determining risk sensitivity is therefore the basis for a global compliance approach that includes facets such as policies and procedures, oversight and resource allocation, training and follow-up and even incentives and disciplinary measures. The ultimate goal, Cottle says, is a clear set of standards for operation and for consistent corporate behavior across multiple jurisdictions.

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